Executives
Jason Golz - IR
Angela Chen - CFO
Alex Hui - President and CEO
Analysts
Krishna Shankar - JMP Securities
Christian Schwab - Craig-Hallum Capital Group
Jay Srivatsa - Roth Capital Partners
Richard Shannon - Northland Securities
Pericom Semiconductor Corp. (PSEM) F1Q08 (Qtr End 9/29/07) Earnings Call October 30, 2007 4:30 PM ET
Operator
Good day, everyone and welcome to the Pericom Semiconductor Corporation First 2008 Results Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I'll turn the call over to Jason Golz, Investor Relations Counsel for Pericom. Please go ahead, sir.
Jason Golz
Thank you, Lucy. Good afternoon and welcome to Pericom's first quarter fiscal 2008 conference call. Our speakers today are Alex Hui, President and CEO; and Angela Chen, the CFO.
Today the company will discuss its financial results, comment on the industry and on Pericom's business, and provide guidance for the second quarter of fiscal 2008.
Certain matters discussed in today's press release and on this conference call may contain forward-looking statements that involve risks and uncertainties. Therefore, we encourage you to review all filings made by the company with the Securities and Exchange Commission, particularly the risk factor sections of such filings.
In accordance with regulations of fair disclosure, Pericom will continue to only provide guidance via its earnings release and its conference call. The company will not provide further guidance or updates during the quarter unless it does so via press release.
Now Angela will first discuss the financial performance of the quarter. Then Alex will give his comments on the industry and on Pericom's business. Afterwards he will provide guidance for 2Q Fiscal 2008. I'll now turn the call over to Angela Chen. Angela.
Angela Chen
Thank you, Jason. Consolidated net revenue for our first fiscal quarter were $38.5 million an increase of 22% from last quarter and 24% increase over the same period last year. Some revenue statistics include the following: Turns bookings in the first quarter were in the low 40% range, as expected. Our consolidated end market shipments were Computer, 29%, Communication 34%, Consumer 33% and 4% from other material markets.
Consolidated geographic distribution in the first quarter was domestic 11%, Asia 86%, Europe 3%. Sales into the domestic distribution were 3% of revenue. (inaudible) distribution was 46%. Sales directly into contract manufacturers were 31% and the sales to OEMs were 20%.
Under generally accepted accounting principles, which include expenses for stock based compensation. Consolidated gross margin in the first quarter of fiscal 2008 was 36.4%, which is very close to the 36.5% in the fourth quarter and up 260 basis points from 33.8% compared to last year.
We were preset to deliver operating income of $4.1 million under GAAP in the first quarter of fiscal 2008. This is the 8th quarter in a row the company has delivered operating income. GAAP basis operating income was $9.9 million in the first quarter compared with $9.8 million in the fourth quarter.
On a GAAP basis fourth quarter operating income including FAS 123R expenses. Total stock based compensation expenses in the first quarter was $508,000 and for information purpose the foreign stock based compensation amount are quoted in our GAAP results, part of which though $29,000, R&D $150,000, sales and marketing $143,000, [C&A] $186,000 all combined to a total of $508,000. Consolidated interest and other income of $1.4 million was net of most of the interest income.
Our first of quarter GAAP basis income before tax was $5.5 million, compared with a $3.1 million in the previous quarter. In the first quarter, our effective tax rate was approximately 31%. GAAP basis net income in the first quarter was very strong that is $3.9 million or $0.17 per share, compared with $4.1 million or $0.08 per share, in the previous quarter and the net income of $1.6 million or $0.08 per share in the first quarter of last year.
Our total assets at the quarter end were $418.7 million, compared with $214.2 million in the previous quarter. Our cash balances including both short and long term liquid assets, as of September 29th, 2007 was $130.9 million was $131 million in the previous quarter.
We used the $5 million to repurchase 454,000 shares of stock. Cash and the marketable securities is $5.08 per share, and the net book value is $7.44 per share.
Now I will turn the call over to Alex to comment on our business and the industry.
Alex Hui
Thank you, Angela. We are very pleased to report very good results in Q1 driven by strong demand for our IC and FCP products across the board in Computer, Communication and Consumer segments. Net revenue of $38.5 million represents a sequential increase of 22% from Q4 fiscal '07 and up 24.8% compared to the same period last year.
On a consolidated basis, the revenue mix for our product families was IC 60%; which included analog switches 28%, digital switches 12%, silicon clocks 8%, connect 7%, and interface 5%. Frequency control products, from SaRonix-eCERA accounted for 40% of our total revenue.
Gross margin of 36.4% was in line with last quarter and 20 to 60 basis points higher than the comparable period last year. Operating income of $4.1 million represented a sharp increase of 143% compared to last quarter and 487% compared to the same period last year.
We are very pleased to see a double digit operating margin of 10.6%. The sharp improvement in operating results shows a leverage of increasing gross profits, while keeping expenses under tight control.
Our top five end customers in fiscal Q1 were Cisco, Dell, HP, Samsung, and Garmin. These customers accounted for about 22% of our total revenue, and there was no 10% customer this quarter.
IC revenues went up high double-digits in the fiscal Q1. This is driven by strong demand for products across the board with particular strength in digital video, ultra mobility devices and serial protocol solutions for computer systems.
Digital video revenue ramped up 30% sequentially, driven by increased shipment of our HDMI products to digital TV and multifunction monitor applications.
Revenues from Ultra Mobility devices grew more then 20% quarter-to-quarter driven by strong demand from GPS customers and increased market end penetration in Chinese cell phones.
Serial Protocol Solutions for servers and PCs registered growth of 80% quarter-to-quarter and accounted for about 4% of our total revenue.
As we shared our view in our last conference call, we had projected FCP revenues to show a strong rebound this quarter and indeed it happened. FCP revenue increased close to 30% quarter-to-quarter driven by strong demand across the board, with particular strength in wireless line, telecom and storage applications.
We also benefited from ramp-up in volumes from several computer and communication customers. These are new customers that we start shipping to a few quarters ago, and we see additional ramp-up of revenue this quarter.
This is a breakdown in revenue contribution from the key market segments in Q1. Computers 29%, Communication 33%, Consumer 23% and other about 4%. The mix was very similar to what we had last quarter.
Bookings remained strong in fiscal Q1 with book-to-bill ratio greater than one. This led to a high backlog and during the current quarter and we currently expect to see another quarter of sequential growth.
We expect business on computer systems and ultra mobile devices to increase sequentially this quarter and we expect a taper off in our digital video business after you have reached a peak in shipments to OEMs customers in the September quarter.
Let me make some new comments of our new products introduced in fiscal Q1. Pericom expands our digital video solution and continue to maintain our leadership in this fast growing market. We introduced a dual mode the Display Port-to-DVI/HDMI Bridge product and demonstrated the technology at a recent IDF in San Francisco. The Display Port product has positive color of up to 12bits per channel on the HDMI output.
We also launched two new HDMI switches that (inaudible) with HDCP communicating capability and a family of low power, low jitter, spread-spectrum clock generators. This products target applications in HDTV, Display Monitors, Notebook and Desktop PCs.
We also expanded our solutions for high bit serial protocol signal integrity solution in solid applications. Pericom introduced several (inaudible) tools fast ReDriver products in small packages. This ReDriver products we ensure ultra high-speed performance with good signal integrity for disk verifications in notebook computers, PC, servers and storage arrays.
For the last few years Pericom has focused their efforts on enabling the transition from parallel to serial connectivity in computer, communication and consumer systems. The industry migration for parallel BUS to serial BUS is generating opportunities for billions of dollars of semiconductor content, and we believe Pericom is well poised to take advantage of these opportunities. We have invested heavily in developing key IPs and products to enable serial protocols like PCI Express, HDMI, DisplayPort, Gigabit Internet, USB, SAS and SATA.
Leveraging our core competence is signal switching and routing, signal conditioning, and frequency timing. We have provided our customers with reading access from connectivity solutions. Our strong customer relationship has led us to develop cutting edge technology that is often first in the market. As time progresses we believe our vision is being validated with the responses that we see from our customers on our products and solution.
We are now reaping the early benefits of our efforts in providing serial connectivity solutions to our traditional PC, server and networking communication customers, as well as the new fast emerging applications like digital video and auto-mobility devices. For our expanding ASSP, serial connectivity solutions and strong design win activities we expect to see sustained momentum, improving our revenue and profitability in fiscal '08.
I'd like to now give some guidance for the next quarter. We currently expect Q2 results to be as follows, revenues of $39.3 million to $40.8 million, gross margin in the range of 36% to 37%. Operating expenses are expected to be in the range of $9.7 million to $10 million, which includes stock-based compensation expenses of approximately $600,000. Operating income is expected to be approximately $1.4 million consisting primarily of interest income. Tax rate is of about 32%.
We now open up for Q&A.
Question-and-Answer Session
Operator
(Operator Instructions) We'll take our first question today from Krishna Shankar with JMP Securities.
Krishna Shankar - JMP Securities
Yes, congratulations on a good quarter. I just had a couple of questions, as you look at the December quarter, you indicated that you expect continued strength in computing and communications with the digital video business tapping off. Within those segments, Alex can you talk to where your things turn to the notebook servers? What type of networking equipment? And gross margins, what is the outlook for some potential upside there given the mix improving?
Alex Hui
We expect to see [continued] strength in the notebook and server segments, [adjacent] by year demand as well as our continued ramp up of our PCI Express solution. On the communications side, we expect to see continuous trend in the Wireless LAN area, and also the Enterprise Network area. We expect to gain on the gross margin in 36% to 37% range this will be somewhat dependent on the final mix. But our goal is obviously continue to drive, richer mix of our focused products.
Krishna Shankar - JMP Securities
And what about the timing module solutions business, the outlook for Q4?
Alex Hui
We expect that both our IP business and our frequency control business would move up sequentially.
Krishna Shankar - JMP Securities
Great thanks. Thank you.
Alex Hui
Thank you.
Operator
Our next question will go to Christian Schwab with Craig-Hallum Capital Group.
Christian Schwab - Craig-Hallum Capital Group
Great thanks. Great quarter, guys.
Alex Hui
Thank you.
Christian Schwab - Craig-Hallum Capital Group
This PCI-Express, I missed, what was the revenue that we did this quarter in PCI-Express?
Alex Hui
We are approximately up about 80% compared to last quarter.
Christian Schwab - Craig-Hallum Capital Group
We had kind of talked about maybe last quarter that only growing at 20% to 30%, where does the surprise come from?
Alex Hui
Look we see a strong demand from some of our customers from the PC segment and it seems like some of the applications are ramping up earlier then we expect.
Christian Schwab - Craig-Hallum Capital Group
Is this the beginning of a trend here, we are on a trajectory, kind of had a delay in our trajectory to $10 million is that, can you give us an update on how you see this growth accelerating?
Alex Hui
We believe the business will continue to grow, but as you have seen overtime it's highly dependent on the ramp-up of customer programs. So, we are really hesitant to give more guidance at this point. But we are happy to see some of the programs initiating, that we expect to see an additional benefits in the following quarter. And then as we see the new Intel chipset, [Egulled] introduced in the second quarter of next year and we expect to see a further momentum.
Christian Schwab - Craig-Hallum Capital Group
Great.
Alex Hui
Yeah certainly now the platforms, we are monitoring very closely.
Christian Schwab - Craig-Hallum Capital Group
Right. Who are your leading customers in the Wireless LAN and the Enterprise Networking space that are going to drive sequential communication growth?
Alex Hui
In the Enterprise customer the people like Cisco, and Huawe, and ZTE and ASUSTek in China. Wireless LAN got today major participation is on the wireless LAN, add on cost, to the notebook and PC platform, is actually aligning with the wireless LAN chipset suppliers.
Christian Schwab - Craig-Hallum Capital Group
Who are those that you are aligned with?
Alex Hui
This are the people like Aptos, Marvell, Broadcom those guys.
Christian Schwab - Craig-Hallum Capital Group
Right. And given, when can we kind of think about this big picture, we still kind of driving this company, where we think or its going to be growing in that 15% to 18% or some of these design wins in market dynamics that we are seeing [eligibly] that you could ultimately grow faster than that?
Alex Hui
I think our goal all along for the last few years is to sustain a growth of 15% to 20%. We also mentioned that if some disturbance in our performing well, look well, we are seeing lumber height and depth this is obviously one of those quarters.
Christian Schwab - Craig-Hallum Capital Group
Great. No further questions, thanks a lot.
Alex Hui
Thank you.
Operator
Our next question will go to Jay Srivatsa with Roth Capital Partners.
Jay Srivatsa - Roth Capital Partners
Thanks for taking my question. Congratulations on a very good quarter.
Alex Hui
Thank you.
Jay Srivatsa - Roth Capital Partners
On HTMI portion could you tell us what the revenues were?
Alex Hui
Essentially it went up sequentially above 30% compared to last quarter.
Jay Srivatsa - Roth Capital Partners
Okay. And as you look ahead beyond the December quarter do you expect seasonal softness in the TV side to impact your consumer revenues?
Alex Hui
Our consumer revenue essentially consists of two areas, digital TV, actually digital video as well as the cell phone. So we expensed slightly in the December quarter with a normal seasonality in the TV market, likely there could be a trend down in terms of digital video business. The cell phone I think will probably mainly get healthy in Q4 you might see it take off in Q1.
Jay Srivatsa - Roth Capital Partners
Okay and then speaking of cell phone it appears in China there is a big push towards 3G phones starting of next year. Do you see yourself participating in that space and if so what kind of opportunity you see there?
Alex Hui
Yeah, our products are essentially in use across multiple platforms and we certainly are seeing a lot of strain on the time the cell phone area ranging from GSM to CDMA and also some of the new standards. Another key driver than we've been seeing is actually some of what we call reducing comp application. A lot of cell phones in China now have two SIM cards to support two different lines and we are participating well in that market also.
Jay Srivatsa - Roth Capital Partners
Okay in terms of product mix we had 60:40 between ICs and frequency control products. Do you expect that percentage to stay the same or any shift in anyone of those end markets?
Alex Hui
We except the mix to be 60:40 within that ballpark, quarter-to-quarter sometime you see the percentage might shift one way or the other slightly by few a percent, but we continue to maintain that we could see good healthy [depositor] to grow in our profile IC and FCP business.
Jay Srivatsa - Roth Capital Partners
In terms of gross margins you've kind of guide to flat margins. What do you see as the catalyst that could take you to improving gross margins if you look ahead beyond the December quarter?
Alex Hui
We have seen a nice pick up year-to-year of 260 basis points and I think that's within our goal up to the 3% a year and again our goal for the last year has now changed, its continuing to re-drive a richer mix of our focus products and I think we continue to make that progress. So even this quarter as you see while we have a high mix of FCP products, we actually to maintain the overall margin very close to what we had last quarter and so this is actually coming from benefit of a richer mix of focused products.
Jay Srivatsa - Roth Capital Partners
Thank you very much. Nice quarter.
Alex Hui
Thank you.
Operator
(Operator Instructions). We'll go now to Richard Shannon with Northland Securities.
Richard Shannon - Northland Securities
Hey Alex and Angela, how are you?
Alex Hui
Thank you. Good.
Angela Chen
Thank you.
Richard Shannon - Northland Securities
Quick question on inventories, is there any build up in inventory that your customers or anything that would put a halt on the supply chain here in the next few months or so?
Alex Hui
Not really. We actually as I said we do a monthly inventory check in the channel and actually now our inventory at the end of September was lower than the June quarter.
Richard Shannon - Northland Securities
Okay, good. Delving into HDMI a little bit, kind of curious just to your outlook for your business we see with the two inputs switches versus the three input one. Take a look at some of the TV's that are being offered out there like there is, frequent opportunities for growth there over the next three or four quarters on the three inputs switches. Are you are seeing a lot of interest from your customers in that chip?
Alex Hui
Yeah I think, yesterday we thought actually we have product with two to three and four inputs, so we continue to see now pretty much the multiple input is at its actual trend. So we think this is a pretty healthy situation.
Richard Shannon - Northland Securities
Okay. Do you think three input switches in terms of revenues could exceed that to three input switches next year or something?
Alex Hui
Not necessary because there's something to think generally out there that you might know that, some of the scale attached are also putting up in the multiples outputs. So in some cases they might use two and in some of the uses they might use three, yeah.
Richard Shannon - Northland Securities
Okay. Circling back to PCI Express, kind of curious as to the revenue makeup during the September quarter, it's my understanding that most of your PCI Express revenues to date have been largely in the signals which is re-drivers. The high growth you saw in the September of course does that elude to any high growth in any of the bridges or the packet switches?
Alex Hui
Well, actually today the revenue consists of few areas that our signals reach. Our re-driver products, our bridge and packet switch products and also actually some of our timing products. Actually we began to ship our packet switch and the bridge products last quarter and we expect it to continue to ramp up overtime. The revenue is actually coming from multiple areas.
Richard Shannon - Northland Securities
Okay. But does that imply that, you’re expecting 20% to 30% growth in remaining of the quarter end and you did something like 80% this quarter. That means the packet switches and bridges were contributing more than you had thought or is it most spread out roughly?
Alex Hui
It's actually quite spread out, yeah.
Richard Shannon - Northland Securities
Okay. And just last quick question any update on PTI?
Alex Hui
I think it’s just another income line, because they spend a bulk this quarter. And so we expect they probably continue to be profitable in the balance of this fiscal year.
Richard Shannon - Northland Securities
Okay. And actually one more question for you, Alex. I think you mentioned in your commentary the expectations of seeing revenues taper off after the December quarter. Alex can you give us a flavor as to what kind of tapering off we should expect to see?
Alex Hui
Well, Richard when we say tapering off we were talking about the tapering off of the digital video revenue in the December quarter which is high, obviously due to the seasonality of the TV market. But that's all we talk about and when we say that they have taper off.
Richard Shannon - Northland Securities
Okay. Then let me rephrase my question, in March quarter should we expect something that’s different then typical seasonality for you?
Alex Hui
At this time no.
Richard Shannon - Northland Securities
Okay.
Alex Hui
We are guiding one quarter at a time.
Richard Shannon - Northland Securities
Okay. Great thanks a lot, and congratulations for the good quarter.
Operator
And we'll go now to Krishna Shankar with JMP Securities.
Krishna Shankar - JMP Securities
Yes can you give us, if you look at sort of the three key new growth area for revenue PCI Express, HDMI and ultra mobility, Alex can you give us some sense for the revenue in each these three growth buckets?
Alex Hui
In our digital video today it's probably about $3 million for quarter. PCI Express is probably $1.5 million, ultra mobility is kind of like consist of multiple segments and ultra mobility is about 14% of our business.
Krishna Shankar - JMP Securities
So that would include GPS, cell phones and other types of portable devices?
Alex Hui
Right, yeah.
Krishna Shankar - JMP Securities
I see okay. And can you folks reiterate for us your long term model as growth margins go up 200 to 300 basis points a year, in a two to three years, what would be the long-term growth margin and operating margin targets?
Alex Hui
I think we've finished last fiscal year, fiscal '07 in about 34% to 35%. And our goal is to drive our margin improvement 2% to 3% a year. So, if you look out about three year we are probably looking at a low 40% kind of range in terms of overall operating margins. That thing much more we are looking at.
Krishna Shankar - JMP Securities
Okay. Great, thank you and congratulations on a good quarter again.
Alex Hui
Thank you.
Operator
And ladies and gentlemen this does conclude our question and answer session. I'll turn the conference back our speakers for any closing remarks you may have.
Alex Hui
I'd like to thank all of you for joining the call today and I like to mention that we would be going to the AeA Financial Conference in Monterrey next week presenting in section one on Monday and Tuesday morning. We also would be going to the Needham Conference on January of 2008, so we hope to see you over there and if you would like to have a meeting with Pricom or conference call, please feel free to contact Jason Golz at Ashton Partners. Thank you.
Operator
And ladies and gentlemen this does conclude our conference; we appreciate your participation. You may disconnect at this time.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!